Jumbo loans are creeping into non-QM, HELOC securities

Larger loans are increasingly showing up throughout private-label residential mortgage-backed securitizations, even in transactions outside the jumbo sector, according to new research.

Balances of $1 million or more are becoming more common for securitizations in the market for loans made outside of the qualified mortgage definition's parameters, according to a Bank of American Securities report published Monday. 

Also, securitizations dedicated to the average loan size for second liens/home equity lines of credit increased from $88,000 to $95,000 between 2024 and 2025. The share of second-lien loan balances above $200,000 increased from 22% to 25% in the same period.

Higher loan balances are in line with a forecast rise in gross issuance this year and suggest related performance implications are filtering into more parts of the market. B of A Securities pegged gross issuance at $213 billion last year and forecasts it will rise to $241 billion in 2026.

"In our data, larger loan balances are consistently associated with higher delinquency rates and faster prepayment speeds across shelves and vintages," the Bank of America Securities researchers wrote, while noting that the trend isn't always as straightforward as all that.

A variation on the theme in non-QM

One twist on this trend the researchers note is that non-QM issuers, in addition to tightening underwriting, have been mixing in more large, full-documentation loans with higher scores, which more typically would be seen in jumbo deals.

While typically large loans do typically prepay or go into arrears faster than other loans, the full doc and credit score features of more typical jumbos could decrease delinquencies in a deal dominated by non-QM loans.

"However, investors ought to watch out for tail risks as these jumbo-like loans may drive up deal-level averages (better average FICO, LTV, etc.) without actually improving the riskiest part of the capital stack," the researchers added.

Outside of any jumbo-like products thrown into the mix, there has been some upward pressure on non-QM delinquencies where the mortgages involved are larger, investment loans.

Implications for seconds and HELOCs

Meanwhile, second-lien loans with balances of $200,000 tend to be prepaying most quickly. Scores greater than 760 also have exhibited levels of prepayments, with other credit tiers experiencing more mixed performance.

Delinquencies also have been inching higher for larger loan balances. An option that often exists to charge off obligations after they reach the 180-plus days increases the risk of loss in line with this trend.

"Such losses will still be lower than the rated bond balances," the researchers said.